Fed wrestling with the size of aid program: Bernanke

WASHINGTON: The Federal Reserve is prepared to take further steps to rejuvenate the economy by buying Treasury bonds but is wrestling with how big the program should be, Chairman Ben Bernanke said Friday. Bernanke also indicated that Fed policymakers are trying to craft a plan to lift inflation from super-low levels. He made his remarks in a speech at a Fed conference in Boston.

Bernanke said the Fed must both weigh the risks of a Treasury-buying program and determine how the debt purchases should be paced. The Fed's bond purchases would be intended to lower long-term interest rates to stimulate buying and spending and help lower unemployment.

Those Treasury purchases would inject many more dollars into the financial system. And that poses a longer-term risk: High inflation. Fed policymakers are widely expected to announce a Treasury-buying program at their next meeting Nov. 2-3.

"There would appear — all else being equal — to be a case for further action," Bernanke said. World stocks rose after Bernanke's remarks. But the prospect of more dollars swirling around the financial system did nothing to help the dollar itself, which slid further after the Fed chief spoke. The economy is growing at a pace "less vigorous than we would like," Bernanke acknowledged.

Unemployment, now at 9.6 percent, has been stuck near double digits for more than a year. Bernanke indicated that the Fed is concerned that economic growth is likely to remain lackluster and that unemployment will decline only slowly next year. High unemployment is likely to keep consumers cautious in their spending.

During the recession, the Fed launched a $1.7 trillion program, buying a mix of mortgage securities and government debt. The effort was credited with forcing down mortgages rates and providing support to the weakened housing market.

The new program is likely to be smaller. One Fed official has suggested a $500 billion program, while another has suggested it be $100 billion or less.

The Fed is again resorting to such unconventional methods — called quantitative easing — to stimulate the economy because it has already sliced its key interest rate to a record low near zero. The anticipated second round is being dubbed quantitative easing two.